Portability of Unused Estate Tax Exclusion
The executor of a deceased spouse’s estate may transfer any unused exclusion to the surviving spouse for estates of decedents dying after December 31, 2010. A Form 706 (Estate Tax Return) must be timely filed to obtain the portability. (Code Sec. 2010(c)(2)) But see “Special Extension for Portability Only”, below, where the Form 706 is being filed for portability only and is not otherwise required to be filed.
The applicable exclusion amount is the sum of:
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the “basic exclusion amount” and
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in the case of a surviving spouse, the “deceased spousal unused exclusion amount.”
The basic exclusion amount is $13.99 million for deaths in 2025.
The “deceased spousal unused exclusion amount” is the lesser of:
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the basic exclusion amount, or
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the excess of the applicable exclusion amount of the last deceased spouse dying after Dec. 31, 2010, of the surviving spouse, over the amount on which the tentative tax on the estate of the deceased spouse is determined. (Code Sec. 2010(c)(4))
A surviving spouse (for convenience we’ll assume it is the wife in this discussion) may use the deceased spousal unused exclusion amount in addition to her own basic exclusion for taxable transfers (i.e., gifts) made during life or her estate may use it on the estate tax return at her death.
Example - Husband dies in 2014, having made taxable transfers of $3 million and having no taxable estate. His unused exclusion amount in 2014 was $2.34 Million (2014 exclusion amount of $5.34 million - $3 million). An election is made on his estate tax return to permit Wife to use his deceased spousal unused exclusion amount. Wife has made no taxable gifts in his year of death or later and has had no other husbands. Wife's applicable exclusion amount for 2025 is $16.33 million (her $13.99 million basic exclusion amount plus $2.34 million deceased spousal unused exclusion amount from Husband), which she may use for lifetime gifts or for transfers at death. (Committee Report)
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If a surviving spouse is predeceased by more than one spouse, the amount of unused exclusion that is available for use by the surviving spouse is limited to the lesser of the applicable exclusion amount (for example, $13.99 million if the spouse died in 2025) or the unused exclusion of the last deceased spouse. (Code Sec. 2010(c)(4))
For the surviving spouse or her estate to use the deceased spouse’s unused exclusion amount, the predeceased spouse's estate must make an election – referred to as the portability election – on a timely filed estate tax return (Form 706) that includes a computation of the unused exclusion amount. To make the portability election, Form 706 must be filed even if the value of the gross estate is not enough to otherwise require filing an estate tax return. See regulations § 20.2010-2 for detailed rules and guidance on the portability election.
Caution – Possible Repercussions for Not Filing the Portability Election!
Where a surviving spouse’s estate is expected to be valued at less than the estate tax exclusion amount when he or she passes, it may seem to be a waste of time, effort and money to file a 706 Estate Tax Return for the pre-deceased spouse. However, in making that decision, one should consider the possibilities of the surviving spouse receiving inheritances, hitting the lotto or for Congress to reduce the estate tax exemption sometime in the future. Any of these potential events could result in substantial estate tax considering the current tax rate on taxable estates is 40%. Who will get the blame? You the tax preparer of course! If the executor refuses to file, the 706 then get a signed statement to that effect. See Suggested Statement For Executor Signature At End Of Chapter
Special Extension for Portability Only
Rev. Proc. 2022-32 provides a simplified method for obtaining an extension of time to file Form 706 to make a "portability" election. A portability election allows a surviving spouse to apply a deceased spouse's unused exclusion (DSUE) amount to their own transfers during life or at death. This method supersedes the previous method provided under Rev Proc 2017-34.
Under this simplified procedure, which should be used in lieu of the letter ruling process, a complete and properly prepared Form 706 must be filed on or before the fifth anniversary of the decedent's death in order to elect portability. No user fee is required.
The effective date is July 8, 2022, and becomes the exclusive method for obtaining an extension of time for estates meeting the requirements in the procedure. Thus, the IRS will no longer issue letter rulings granting an extension of time to make a portability election on or before the fifth anniversary of the decedent's date of death for estates that qualify to use the simplified method.
The simplified method is only available to estates that are not required to file an estate tax return based on the value of the gross estate. To qualify for the automatic extension, the following requirements must be met:
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The taxpayer is the executor of the estate of a decedent who:
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has a surviving spouse
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died after Dec. 31, 2010, and
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was a citizen or resident of the U.S. on the date of death;
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The taxpayer is not required to file an estate tax return based on the value of the gross estate and adjusted taxable gifts, without regard to the need to file for portability purposes;
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The taxpayer did not file an estate tax return within the time prescribed for filing an estate tax return required to elect portability;
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The executor must file a complete and properly prepared Form 706 before the 5th anniversary of the decedent's date of death; and
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The executor filing the Form 706 on behalf of the decedent's estate must state at the top of the Form 706 that the return is “FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER Code Sec. 2010(c)(5)(A).”
The simplified method of this revenue procedure is not available to the estate of a decedent whose executor already timely filed an estate tax return because the executor either will have elected portability on that return or will have affirmatively opted out of portability.